Printer Makers Look To Service Model For Growth

http://online.wsj.com/article/BT-CO-20111007-705805.html
By Matt Jarzemsky Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Printing companies, facing stalling growth in traditional hardware and supplies sales, are increasingly competing for contracts to overhaul the way their customers deal with printing.

Competition has intensified among Xerox Inc. (XRX), Hewlett-Packard Co. (HPQ) and others in providing so-called managed print services, in which they handle all of a customer's printing needs--from the machines and ink to consulting on reducing costs--typically over the course of a three- to five-year contract.

The business is set to grow 11% to $9.4 billion this year, according to market researcher International Data Corp.

But it remains unclear whether making clients more efficient in their printing--such as by reducing the number of printers per employee in an office--will eat into sales of hardware and toner. That concern comes at a time when sales of printers and supplies are expected to remain flat over the medium-to-long term.

"I think there's no question that if you're going to reduce [printing costs by] 30%, there is some cannibalization," said Bruce Dahlgren, head of H-P's printing services unit. "These customers want to print less. We want to provide the right technology to meet the customer's needs."

The cannibalization is eased by the fact that many potential customers exist, as companies look to cut costs and see managing their print operations better as a way to do so.

"Most enterprises and mid-sized companies don't do a good job of managing print," said Ken Weilerstein, an analyst at research firm Gartner Inc. He said managed print projects typically cut printing costs by 10% to 30%.

The business demands continued investment to improve equipment, as well as areas such as software that enables printing from mobile devices, H-P's Dahlgren said.

"We're on the hook every quarter to bring new solutions" to the company's managed print services offering, he said.

Xerox is ramping up hiring to support growth in managed print services. This year, it's tripling the number of staffers devoted to finding new business at the unit that contains its managed print services operation.

The market has become more competitive and "isn't for the faint of heart" as many large companies have already signed up with providers, Xerox Senior VP Jim Joyce said.

Joyce said Xerox has shifted its efforts to focus on selling the service to small and medium sized businesses, fewer of which already buy their printing that way. Deals with those customers tend to be smaller, but the market is "really starting to move," he said.

Xerox and H-P are considered by many to be the leaders in the market, though estimates of companies' market share vary, and Lexmark International Inc. (LXK) and Ricoh Co. Ltd. (RICOY, 7752.TO) are also big players.

Lexmark is focusing more marketing spending on managed print services, said John Crandall, general manager of the company's enterprise unit. The company is also seeking salespeople with international and industry experience to help it expand beyond its strengths in the retail and financial services sectors.

"If I've been pushing boxes before, I can't go in and turn my hat around, and I'm a services person all of a sudden," Crandall said. "You're going into a much more complex sale, it's a higher-level sale, often at the C-level."

Weilerstein said growth in the managed print business appeals to printer makers because it compares with stagnation in traditional sales of printers, ink and supplies. The providers are also drawn to the area because it allows them to gain control of large fleets of printers at once, he said.

Printing companies' motivation to sign managed print services contracts involves more than just revenue growth. "The service provider is in the catbird seat" because it can install its own products across a client's operations, Forrester Research analyst Craig Le Clair said. "They're going to lose revenue over time if they don't win these coveted spots.

Le Clair said that the overall market for managed print services is expanding enough to give all the established providers room to grow in the area.

-By Matt Jarzemsky, Dow Jones Newswires; 212-416-2240; matthew.jarzemsky@dowjones.com